UK business leaders, including Virgin Group founder Richard Branson and WPP chief executive Martin Sorrell, warned Prime Minister David Cameron in a letter to the Financial Times on Wednesday that he risks hurting Britain's businesses if he proposes to exit the European Union.

The Paris Prosecutor's office said on Tuesday that it was opening a preliminary investigation into French Budget Minister Jerome Cahuzac over allegations that he had an undisclosed bank account in Switzerland.

Morale among businesses in the euro zone improved again in December, but the unemployment rate reached a new record and households held back from spending in the run-up to Christmas, suggesting the bloc's emergence from recession will be slow.

Silvio Berlusconi withdrew as candidate for Italy's premiership on Monday as the price of a pact with the devolutionist Northern League that could prevent the formation of a stable government after next month's election.

Franco-Dutch carrier Air France-KLM is in "advanced" talks to take control of Italy's flagship airline Alitalia by the summer, Rome's Messaggero newspaper reported on Sunday without citing its sources.

With scant prospect of a swift return to growth in the Euro zone, the risk in 2013 is less outright conflagration in the single-currency area than a fraying of social and political ties and an insidious erosion of hope.

Willem Nabarro, Head of European Equities for Asia at Exane-BNP Paribas says that the worst is over in Europe and investors should now turn their attention to the peripheral countries such as Italy and Spain where he believes there is money to be made.